Flash storage specialist SanDisk (SNDK), a well-performing company whose stock has recently been hitting new highs, will acquire storage system maker Fusion-io (FIO) for $1.1B in cash, adding another chapter to the drama in the market for flash-memory storage companies.
The deal is for $11.25 per share in cash, which represents about a 21% premium over Friday’s market close, but is well below Fusion-io’s IPO price of $19 in 2011. Fusion-io, once a very hyped silicon valley stratup that apparently fizzled out after it went public and all the insiders dumped their shares, is one of a cluster of next-generation storage system players using flash memory, or Solid State Drives (SSD), as an alternative to disk drives for storage.
Fusion-io briefly popped in the weeks after its IPO, but it’s been all downhill from there, with the stock recently bottoming out below $10 before SanDisk’s offer. Fusion-io appears to have had some of the problems of other flash-storage systems disappointments such as Violin Memory (VMEM) — that is, it can’t make money. The company has lost about $36 million in the last 12 months of business and hasn’t turned a profit since its IPO.
The deal makes sense for SanDisk, which would like to leverage its domination in flash memory chip distribution and build into larger integrated systems targeting data centers and enterprise computing, which is what Fusion-io does. The advantage of flash as a memory system is that it is much faster and easier to manage than disk drives, because the memory sits on a chip. This has allowed flash to flourish as a storage mechanism on personal electronic devices and tablets, though its penetration into markets such as networking storage and computer — that’s where SanDisk has flourished as one of the leaders.
The catch is that flash is a more expensive storage medium. It hasn’t quite crossed over to the point to make it cheap enough for mass storage in data centers, though most expect that point to occur in the next few years. Other manufacturers of large-scale data-center storage, such as the recent IPO Nimble Storage (NMBL), are using “hybrid” approaches that combine SSD storage with disk drives.
Executives from both companies lauded the move as giving Fusion-io better prospects for the future, which is probably true.
“Fusion-io will accelerate our efforts to enable the flash-transformed data center, helping companies better manage increasingly heavy data workloads at a lower total cost of ownership,” said SanDisk CEO Sanjay Mehrotra in a press statement.
Clearly, being combined with Sandisk is a better option for the money-losing Fusion-io, which can leverage Sandisk’s infrastructure and distribution network while cutting costs by combining operations. Meanwhile, Sandisk can afford to take more time to build a data-center storage product and wait for the market to mature.